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Beneath the gobbledy-gook, an implied concession about taxes UPDATED

Bookworm on Sep 07 2008 at 12:03 pm | Filed under: Barack Obama, Economics, Taxes

Wow! Unless I’m very confused, beneath all the O-babble here, Obama is conceding that low taxes benefit the economy:

Democrat Barack Obama says he would delay rescinding President Bush’s tax cuts on wealthy Americans if he becomes the next president and the economy is in a recession, suggesting such an increase would further hurt the economy.

Nevertheless, Obama has no plans to extend the Bush tax cuts beyond their expiration date, as Republican John McCain advocates. Instead, Obama wants to push for his promised tax cuts for the middle class, he said in a broadcast interview aired Sunday.

“Even if we’re still in a recession, I’m going to go through with my tax cuts,” Obama said. “That’s my priority.”

What about increasing taxes on the wealthy?

“I think we’ve got to take a look and see where the economy is. I mean, the economy is weak right now,” Obama said on “This Week” on ABC. “The news with Freddie Mac and Fannie Mae, I think, along with the unemployment numbers, indicates that we’re fragile.”

In other words, while Obama shies desperately away from simple declarative sentences, what he’s saying is that his taxes have nothing to do with economic strength. If they did, nothing would prevent his immediately rescinding the Bush tax cuts so that his Obamonomics could help “grow the economy.” Instead, he’s conceding that tax increases are economically damaging, since they could, if enacted, harm an already fragile economy.

Still, Obama remains committed to making those who pay the most taxes pay even more taxes. Let’s put that in other words too: raising taxes has nothing to do with the economy under the Obama plan and everything to do with wealth redistribution. Under the blathering, under the equivocation, under the confusion generated by the vague words, Obama is stating “This is socialism. Taxes are not about paying for the government, a cost that should be kept to a reasonable minimum so that Americans can manage their own money and keep the money growing. They are about punishing the rich, and redistributing wealth in America under the government aegis.”

UPDATE: I wanted to point out that I didn’t misconstrue how the AP reported the above story. The New York Times sums Obama’s words up in he same way:

On ABC’s “This Week,” Mr. Obama said the United States economic condition is “fragile” and pledged that if elected he would push ahead with his plan to provide tax relief to the middle class. But he said he would consider delaying any tax increases to wealthy Americans — by rescinding President Bush’s tax cuts — for fear of its damaging impact on the economy.

Again, this can only be understood as a concession increasing taxes damages an economy. The corollary, of course, is that leaving taxes low, or even lowering them, is probably goo for the economy. With the further corollary that any effort on Obama’s part to raise taxes on “the rich” is punitive in nature and has nothing to do with the economy.

UPDATE II: Here’s the link to the interview on “This Week.”

UPDATE III: I’m not the only one who understood that Obama was conceding that tax hikes weaken an economy. Ed Morrisey (aka the Captain) caught that too.

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20 Responses to “Beneath the gobbledy-gook, an implied concession about taxes UPDATED”

on 07 Sep 2008 at 12:18 pm 111B40

Greetings:

It’s not the lack of declarative sentences that worries me; it’s when the imperative one start showing up.
on 07 Sep 2008 at 2:25 pm 2Ymarsakar

They are about punishing the rich, and redistributing wealth in America under the government aegis.”

With the exception of Obama’s buddies. They don’t have to pay any taxes.

A positive point for helen’s consideration.
on 07 Sep 2008 at 6:12 pm 3Danny Lemieux

Last week was the Democrat convention. This weekend, McCain-Palin pull even with (or even ahead of) Obama-Biden.

Here’s my prediction: from here on in, Obama-Biden slowly and consistently lose ground as more and more people read and hear stuff like this. The more pressure they are under, the more they will say stupid things out of desperation until the simply implode. Just a 2-cent prediction, of course.
on 08 Sep 2008 at 5:44 am 4Wizbang

Obama And ‘Tax Cuts’ – Come Again?…

Yesterday, our friend Bookworm wondered if Obama was conceding that raising taxes hurts the economy when he appeared on ABC’s Sunday show, This Week. “Even if we’re still in a……
on 08 Sep 2008 at 11:24 am 5dg

Funny how the tax regime that Obama proposes returning to (i.e., under the Clinton, Rubin, Summers team) produced the best record of economic growth and unemployment in decades.

I wonder when both parties are going to get serious about the deficits and debt that accounting sleights of hand have made seem less serious than they really are. My friends who work in the capital markets are pretty much resigned to tax hikes and spending cuts because that is the only way out of this mess. The O-babble that Bookworm refers to really refers to the fraudulent statistics and accounting that the OMB has put out for years under both Republican and Democratic administrations, with the exception of Clinton. Stop being partisan about numbers that have no ideology but which dictate that taxes will be going up regardless of who controls the White House or Congress. If the US were a company, its equity would be worth nothing, its CEO fired and the “analysts” cheering it on (sorry, Bookworm) would be fined or worse…
on 09 Sep 2008 at 1:08 pm 6suek

Here’s a good article on the FM-FM situation…

http://www.openmarket.org/2008/09/09/are-reporters-financially-illiterate-fannie-and-freddie-are-called-government-sponsored-enterprises-for-a-reason/
on 09 Sep 2008 at 1:42 pm 7dg

SueK, why is that a “good article” on the Fannie-Freddie situation? The author has a BA in economics (and history) but is not a professionally trained economist. He has not written extensively on the housing markets or the financial markets. He starts his piece arguing that reporters are financially illiterate, but then proceeds to make a half-dozen financial errors himself. The most egregious argument is that the government charter has created moral hazard and risky behavior on the part of FNM and FRE, but THIS IS NOT TRUE. Freddie and Fannie did not engage in the part of the market that created the toxic non-conforming loans and securitized mortgages, which is the real source of trouble in the housing market. The public firms, from Citigroup to Merrill Lynch that packaged these things in dishonest ways, not to mention the private companies that sourced the loans with predatory and wholly unregulated practices, like Countrywide for example, are the guiltier parties in the current crisis. The other culpable party is the Fed, run by Republicans for the last 20 years, which kept rates too low and created the bubble to begin with. None of these proximate causes are included in this article. So how can it be any good? I would suggest that you try reading the non-partisan non-editorial pages of the WSJ or the Economist or the FT or Business Week in order to understand what really happened rather than listening to a twenty-something lawyer from HLS who is as financially illiterate as the journalists he is erecting as straw men for his little partisan hit job… It really doesn’t help you understand what happened to housing for us to arrive at the problems that we are in. That FNM and FRE have government charters is really not a cause at all, but a distraction that the right is using to deflect blame from the GOP’s lack of good monetary policy and regulatory oversight.
on 09 Sep 2008 at 1:44 pm 8dg

Just a final thought. Warren Buffett invested in the GSEs a while back and then later got out for a tidy profit. If these institutions were as defective as your author suggests they were, he would not have made the investments. Afterall, as an investor, Buffett walks on water.
on 09 Sep 2008 at 2:03 pm 9Zhombre

dg — Intrade now has Obama 52.8 and McCain 46.4. Just like the space shuttle, the O-rings are not holding up.
on 09 Sep 2008 at 2:05 pm 10dg

Zhombre, take a look at LEH today. That, more than Obama, looks like a blow-up to me…
on 09 Sep 2008 at 2:09 pm 11Zhombre

What’s LEH? Liberals Engorged on Helium?
on 09 Sep 2008 at 2:14 pm 12dg

Lehman Brothers. A private i-bank that gorged itself on bad mortgage securities and misrepresented it on its financials. This is what conservatives are falsely accusing FRE and FNM of doing, while arguing that a government charter caused them to do it. Lehman Brothers is proof positive that this is not the case. It also is a stock that fell 45% today, much more than Obama’s Intrade shares.
on 09 Sep 2008 at 2:18 pm 13Zhombre

OK. Thanks. I will certainly take that red herring under advisement.
on 10 Sep 2008 at 3:25 am 14Soccer Dad

Submitted 09/10/08…

Council nominations are up at the new Watcher of Weasels. Waiting for the takeover – The Glittering Eye questions the timing of the takeovers of Freddie Mac and Fannie Mae and observes that the citizenry is getting hit twice by the bailout. Beneath th…
on 10 Sep 2008 at 5:41 am 15DSchuler

I don’t know that Sen. Obama has ever said that he views tax policy primarily as a tool of economic policy. Contrariwise I think it’s pretty clear that he views it primarily as a tool of social policy and that for him fairness is a pretty high value. But he’s also pragmatist enough to know that if as president he raises taxes during a recession and the recession deepens (or even lasts for his whole term, God forbid) his first term will be his last.
on 10 Sep 2008 at 10:06 am 16suek

Not exactly on topic, but close…

http://wolfhowling.blogspot.com/2008/09/dining-at-trough-obama-palin-compared.html
on 10 Sep 2008 at 10:27 am 17BrianE

From the Washington Post:
By David S. Hilzenrath
Washington Post Staff Writer
Tuesday, August 19, 2008; Page D01

In January 2007, as years of loose mortgage lending were about to send the nation’s housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board.

Discussing the company’s successes, Mudd said one of Fannie Mae’s achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step “toward optimizing our business.”

A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document.

Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers.

Since then, Fannie Mae’s exposure to loosely underwritten mortgages has produced billions of dollars of losses and sent its stock price plummeting, prompting the federal government to prepare for a potential taxpayer bailout of the company. This month, Fannie Mae reported that loans from 2006 and 2007 accounted for almost 60 percent of its second-quarter credit losses.

Fannie Mae documents from the period, obtained by The Washington Post, paint a picture of a company with the dual incentives of fostering affordable housing and making money, and of one caught between the imperatives of increasing its market share while avoiding excessive risk. In a bid to juggle these demands, the company’s executives took on risks they either misunderstood or unduly minimized.

Fannie Mae aimed to benefit from subprime loans and expand the market for them — and hoped to pass much of the risk on to others, documents show. Along with subprime loans, which were typically issued to borrowers with blemished credit, the company targeted so-called Alt-A loans, which were often made with no verification of the borrower’s income.

“By entering new markets — especially Alt-A and subprime — and guaranteeing more of our customers’ products at market prices, we met our goal of increasing market share from 22 to 25 percent,” Mudd wrote in a 2006 year-end report to the Fannie Mae board dated Jan. 3, 2007.

In other internal documents, there was a common refrain: One of Fannie Mae’s objectives for 2006 was to “increase our penetration into subprime.”

In an interview, Fannie Mae Executive Vice President Thomas A. Lund said the company pursued the purchase of subprime loans in 2006 and 2007 at the request of lenders, who wanted Fannie Mae to take the loans off their books. He said Fannie Mae hoped to bring higher standards to the market, and he added that the loans helped the company in its struggle to meet goals the government had set for Fannie Mae’s advancement of affordable housing.

FM was in Alt-A loans and taking substanial risk. My problem is that people assumed the government would back the loans, so investors ignored the increased risk, thinking they could milk the extra return.

Testimony by Alan Greespan before the Senate Banking Committee 2004:
Given their history of innovation in mortgage-backed securities, why do Fannie and Freddie now generate such substantial concern? The unease relates mainly to the scale and growth of the mortgage-related asset portfolios held on their balance sheets. That growth has been facilitated, as least in part, by a perceived special advantage of these institutions that keeps normal market restraints from being fully effective.
The GSEs’ special advantage arises because, despite the explicit statement on the prospectus to GSE debentures that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt. An implicit guarantee is thus created not by the Congress but by the willingness of investors to accept a lower rate of interest on GSE debt than they would otherwise require in the absence of federal sponsorship.

http://www.federalreserve.gov/boarddocs/testimony/2004/20040224/default.htm
on 10 Sep 2008 at 3:58 pm 18suek

This is interesting…

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html
on 10 Sep 2008 at 7:41 pm 19Gringo

The Bush Administration did not rein in spending, contrary to its conservative mandate. In one form or another, we will be paying the price.
on 10 Sep 2008 at 9:15 pm 20dg

Gringo, thank you for the honest assessment. I was losing faith that that was possible.

Suek, you really have missed a chance to understand the underlying causes of the housing crisis by instead insisting on finding irrelevant articles citing lobbying relationships between the GSEs and the Democrats. Truly sad.

BrianE, just to clarify that Post story. The GSEs do not issue non-conforming loans, including jumbo loans and subprime loans. What the article is referring to are insurance wrappers they issued starting a few years back on subprime loans. This liability was something less than $10B on balance sheet debt of $800B, so it was not large. Moreover, it was written off 9 months ago. The foreclosure rates on FNM and FRE loans is one-half that of the private sector banks on the non-conforming side. Again, the problem is much worse amongst private sector banks but you keep harping on the GSEs. Bear already received a tax-payer financed bailout more egregous than FNM and FRE. Lehman and Washington Mutual may be bankrupt this weekend, and likely will see a similar bailout–the Treasury has agreed to buy these banks’ debt using tax payer money. So why do you keep focusing on the GSEs only? It is ignorance or partisanship or both.